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Central Bank Publishes First Insurance Quarterly Newsletter for 2019

In late April, the Central Bank of Ireland (the "Central Bank") published its Insurance Quarterly Newsletter (the "Newsletter") for Q1 2019.

Overview

In her foreword to the Newsletter, Sylvia Cronin, the Director of Insurance Supervision notes that the insurance sector continues to operate in an "increasingly uncertain and complex business environment". Much of the uncertainty relates to Ireland's future relationship with the UK and she emphasises the ever-increasing importance of effective co-operation within the EU. The Central Bank is actively engaging with EIOPA on several issues including coordination platforms organised between National Competent Authorities and EIOPA and recovery and resolution frameworks for insurance firms at both EU and international level. Another issue highlighted is the increasing prominence of sustainable development and its implication for financial markets, and non-life insurers in particular are called out as having an additional interest to act responsibly as risk takers with regard to the impact of climate change on the environment.

Solvency II

The Solvency II 2020 Review is also discussed, including the new deadline (June 2020 instead of April 2020) given to EIOPA by the European Commission to produce the extensive advice which the Commission has requested. The Newsletter notes that the scope of the 2020 Review is broader than had been anticipated, including areas such as Best Estimate, Reporting & Disclosure, Risk Mitigation Techniques, Macro Prudential Issues, Recovery & Resolution, Insurance Guarantee Schemes, Freedom of Services / Establishment, Risk Margin and Interest Rate Risk.

A brief article notes that, following completion of a review, the ''Guidance on the Risk Management of Derivatives'' (the "Guidance") no longer applies to (re)insurance undertakings subject to Solvency II. This document was originally issued in 2001 and last updated in 2010. It is interesting to observe that the Central Bank has withdrawn the Guidance in full and it does not appear that there are plans to replace it. It is also important to note that the Guidance is still applicable to non-Solvency II undertakings.

Insurance Conference

The Newsletter contains an article about the Central Bank's annual Insurance Conference held in February this year. Ed Sibley, the Deputy Governor for Financial Regulation identified important themes for the insurance sector such as the resilience of firms and the wider financial system, Brexit and the review of Solvency II. The Chairman of EIOPA Gabriel Bernardino discussed the challenges and opportunities for the insurance sector from an EU perspective. Sylvia Cronin closed the Conference by highlighting the Central Bank's priority outcomes for the insurance industry in 2019.

Actuarial matters

The Newsletter indicates that there has been a change to the collection method for two reports by the Head of Actuarial Function. For reporting dates from 31/12/2018 onwards, the Actuarial Opinion on Technical Provisions (AOTP) and the Actuarial Report on Technical Provisions (ARTP) (where requested by the Central Bank) must now be submitted via the Central Bank's Online Reporting System, and by no other means.

Brexit

The key objective of EIOPA's recent ''Recommendation for the insurance sector in light of the UK withdrawing from the European Union'' is that competent authorities should strive to minimise the detriment to policyholders and beneficiaries in their treatment of cross-border business conducted by UK insurance undertakings. One of its main recommendations is that competent authorities should apply a legal framework to enable the orderly run-off of UK written business which would become unauthorised should there be a hard Brexit. This has been addressed through the "Withdrawal of the United Kingdom from the EU (Consequential Provisions) Act 2019" – see here for further details. EIOPA also recommends that portfolio transfers from the UK that were initiated prior to Brexit should be allowed to conclude. "Initiated" in this instance means that the UK insurer has already paid the regulatory transaction fee and that the independent expert has been appointed.

Two Memoranda of Understanding (MoUs) have been agreed between EIOPA, National Competent Authorities within the EEA and the Bank of England in its capacity as the Prudential Regulation Authority and Financial Conduct Authority. If the UK leave the EU without a withdrawal agreement, the MoUs would take immediate effect.